Volcker Rule: Federal Reserve Issues Statement of Policy Clarifying the Conformance Period Under the Volcker Rule

Sullivan & Cromwell LLP - April 20, 2012

Yesterday afternoon, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued important guidance (the “Guidance”) regarding the two-year conformance period for compliance with Section 13 of the Bank Holding Company Act, the so-called “Volcker Rule.” The Volcker Rule, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, imposes broad restrictions on proprietary trading and sponsoring and investing in hedge funds and private equity funds by banking entities. The Volcker Rule becomes effective on July 21, 2012, but provides a period of two years from that effective date, subject to extension by the Federal Reserve, for banking entities to bring their activities into compliance (the “Conformance Period”). The Guidance confirms that banking entities have the full two-year statutory Conformance Period to conform fully their activities and investments to the prohibitions of the Volcker Rule; however, banking entities are expected to engage in good-faith planning efforts, appropriate for their activities and investments, to enable them to conform all their activities and investments to the Volcker Rule and the final implementing rules by no later than the end of the Conformance Period.